Only 4 out of 37 banks and building society branches gave good financial advice to undercover researchers, when discussing a lump sum investment, in an investigation carried out by Which? magazine.
The research, carried out for the April 2010 edition of Which?, revealed that the tied advisers recommended inappropriate products, failed to properly explain risks, and generally failed to achieve the basics of good practice, in giving financial advice.
Of the 37 advisers, 21 recommended products which they described as ‘capital guaranteed’, despite the fact that inflation or early withdrawal from the scheme could reduce the real return or incur charges that would reduce the capital. Eight of the advisers incorrectly used the term ‘low risk’ to describe these investments.
Six advisers suggested placing the lump sum investment in an investment bond, but, again, failed to adequately explain the risks involved.
Fourteen of the advisers did not draw the customer’s attention to the Financial Services Compensation Scheme (FSCS), and only one adviser out of 37 suggested splitting the cash into 2 investments, so that each would be protected under £50,000 limit of the FSCS.
What constituted good financial advice
For the purposes of the survey, Which? defined 6 points that constituted good financial advice. Advisers had to:
- Disclose their status as tied adviser offering limited product range
- Carry out a thorough fact-find
- Establish the customer’s attitude to investment risk
- Discuss tax in relation to the product they were recommending
- Fully explain the product, including the risks
- Explain the product’s fees and charges
The institutions visited were four branches each of Alliance & Leicester, Barclays, Bradford & Bingley, HSBC, Lloyds TSB, Nationwide and Natwest, and three branches each of Abbey, Britannia/Co-op Bank, and Halifax/Bank of Scotland.
The researchers posed as over-55 retired savers, Which? said.
The report highlighted the deficiencies of tied advice, where employees of the high street institutions are limited to selling their own products, and has been termed ‘a sad indictment of the sales culture in large institutions.’
Which? added that it “advises people with money to invest to go to an independent financial adviser (IFA) who can search the whole market, find the best deals available and recommend something suitable.”
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